Positive Outlook for Industrial Space
As the recovery started, industrial property was one of the first categories to benefit. NE Ohio and Medina, in particular, have witnessed vacancy decline to a point where both rents and pricing have risen to rates not seen since 2007 and 2008. Smaller buildings under 15,000 SF and rental spaces under 5,000 SF have become scarce.
As an investment category, industrial property is not very glamorous. Nor is it a conservative investment. It is less management intensive with little turnover in tenants. The risk is higher with start-up tenants, environmentally troublesome products or processes, and adverse economies. These risk factors can be offset by higher rents and well-drawn leases.
Construction costs play a factor too. Building new has a much higher price tag than existing construction, while rents do not often make up for the difference in cost. An existing well maintained warehouse or service building will lease for nearly as much as a new facility if the functionality is there. This is why new industrial construction is slow to follow a recession and why you rarely see this category being over built. The empty industrial buildings you do see are often a result of their lack of functionality or environmental issues.
Warehouses for example can be reused for many decades. Newer higher ceiling warehouses will command a premium, but the older lower ceiling warehouses are still very leaseable. Big-box warehouses are very much in demand due to E-commerce’s need to deliver next day. “CoStar data shows that average asking rents at big-box warehouses have climbed 20 percent since 2011, from $4.78 per sq. ft. in 2011 to $5.73 today.”
Lawrence Yun, NAR’s chief economist, predicted a slight drop in prices, particularly for the best buildings in the biggest markets, thanks to a slowing economic growth, investor caution…and the likelihood of a rate hike before year’s end. But overall, job creation should make for stable occupancy at office buildings, industrial complexes and other commercial properties.
For guidance in locating the right property for your needs, call Gerspacher Real Estate Group. We have been helping clients find the right properties since 1959.